BEIJING—China’s two biggest banks eased mortgage rules on Thursday and will offer lower lending rates for first-time homebuyers, as the government moves to reinvigorate its real-estate sector.
Property prices have fallen for five months in a row, marking a downturn that has become a drag on the world’s No. 2 economy. Beijing has directed banks to make mortgages cheaper, but experts said it wasn’t clear that the banks would follow through on some of their more ambitious offers on a large scale, at the expense of profitability
Industrial & Commercial Bank of China Ltd. , the biggest Chinese lender by assets, and China Construction Bank Corp. , the second-largest, will both allow home owners with no mortgage debt to purchase a second home at the more attractive terms typically offered to first-time home buyers.
They also pledged to offer first-time home buyers discounts that would lower their mortgage rates by as much as nearly two percentage points from the current benchmark of 6.55 per cent.
ICBC, which disclosed the new terms to its branches in a notice reviewed by The Wall Street Journal, also said it would offer owners of two or more homes a lower down-payment requirement, of as little as 30 per cent of the home price, compared with the usual 60 per cent, if they cleared their mortgage balances. An ICBC press representative declined to comment.
CCB, which unveiled new guidelines in a news release, didn’t respond to requests for comment. China’s other two big state-owned banks -- Bank of China Ltd. and Agricultural Bank of China Ltd. -- said they didn’t have an immediate comment.
China’s central bank last week ordered lenders to offer more attractive terms for home buyers. Policy makers are seeking ways to shore up property prices without resorting to large-scale government spending, for fear that would hamper efforts to reduce the economy’s reliance on projects such as infrastructure for growth. Broad interest-rate cuts, another potential tactic, carry the risk of boosting debt levels, potentially harming banks in the future.
Average prices for new homes fell 0.9 per cent in September from August, a faster decline than the 0.6 per cent drop in August, according to China Real Estate Index System, a data provider.
Real-estate agents say that since the central bank issued the order, buyers have been waiting for banks to specify their terms.
"The move has boosted the confidence of homebuyers and property developers as it shows that Beijing wants to save the market, but we’re still waiting for the lenders to change their lending policies,” said Zhang Shihua, a property agent selling villas in the northeastern Chinese city of Shenyang.
Experts said it wasn’t likely that banks would offer the full discounted mortgage rate to many customers. The full discount would result in a mortgage rate of about 4.6 per cent, compared with the benchmark five-year bank deposit rate of 4.75 per cent. That would mean banks were essentially lending at a loss.
“It’s very unlikely that the banks could in practice offer as much as a 30 per cent discount given the high funding costs nowadays,” said Lian Ping, the chief economist of China’s state-run Bank of Communications Co. Ltd..
Before the central bank’s new rules were issued, the minimum down-payment ratio stood at 30 per cent for first-time home buyers and at 60 per cent for second-home buyers. Beijing implemented the requirements in late 2010 to prevent speculators from buying multiple homes, driving housing prices too high for many ordinary consumers to afford.
Under the new rules from the two banks, buyers who have one apartment and have paid off their mortgages can be considered first-time home buyers, qualifying them for lower down payments and interest rates on a second home. ICBC’s rules go a step further, potentially making the better terms available to owners of more than two homes. CCB’s notice didn’t mention a similar policy.
Analysts said the new mortgage rules are expected to boost demand from first-time buyers as well as people seeking to move into a better home, but that the shift isn’t likely to reverse the decline in the market. Too many homes have been built, given current levels of demand, they say.